Definitions Flashcards
Positive statements
Claims that attempt to describe the world as it is
Opportunity cost
- Next best alternative that must be given up to obtain something
- value of one good measured in terms of the other good
Normative statements
Claims that attempt to prescribe how the world should be
Normal good
A good for which, other things being equal, an increase in income leads to an increase in quantity demanded
Absolute advantage
The ability to produce a good using fewer inputs than another producer
fewest inputs/resources
Inferior good
A good for which, all things being equal, an increase in income leads to a decrease in quantity demand
Comparative advantage
The ability to produce a good at a lower opportunity cost than another producer
** lowest opportunity cost**
Equity
distributing economic prosperity fairly among the members of society
** distribution of income**
Economics
The study of how society managers it’s scarce resources
Scarcity
The limited nature of society’s resources
Externality
The uncompensated impact of one person’s actions on the well being of a by stander
Market economy
An economy that allocates resources through the decentralised decision making of many firms and households as they interact in markets for goods and services
Inflation
An increase in the overall level of prices in the economy
Productivity
The quantity of goods and services produced from each hour of a workers time
Marginal change
A small incremental adjustment to a plan of action
Market power
The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
Market failure
A situation in which a market left on its own fails to allocate resources efficiently
Microeconomics
The study of how households and firms make decisions and how they interact in markets
Macroeconomics
The study of economy wide phenomena, including inflation, unemployment and economic growth
Production possibilities frontier
A graph that shows the various combinations of outputs that the economy can possibly produce given the available factors of production and the available production technology
Substitutes
Two goods for which a decrease in the price of one good leads to a decrease in the demand for the other good
Complement
Two goods for which a decrease in the price of one good leads to a increase in the demand for the other good
Opportunity cost
The best alternative that must be given up to obtain some item
Quantity demanded
The amount of a good that buyers are willing and able to purchase
Quantity supplied
The amount of a good that sellers are willing and able to sell
Equilibrium
A situation in which supply and demand have been brought into practice
Supply = demand
Quantity supply=quantity demand
Invisible hand
The idea that buyers and sellers freely interacting in a market economy will create an outcome that allocates goods and services to those people who value them most highly and makes the best use of our scarce resources
Price elasticity of demand
A measure of how the quantity demanded of a good responds to a change in the price of that good demanded
Efficiency
Society getting the most from its scarce resources
